Grossman Model and Impacts of Hypochondria †MyAssignmenthelp.com

Question: Discuss about the Grossman Model and Impacts of Hypochondria. Answer: Introduction: Health has three very important roles in the Grossman model. Hypochondria condition is a situation where one has a negative perception of suffering from a certain major illness (Mayo Clinic, 2015). This condition therefore implies that there is a reduction in the optimal health. The people with this condition sometimes become functionless because they have so much worry within themselves. They keep checking their body for any symptom that may be a sign of illness (Novak, 2016). A normal body condition such as a noisy stomach is enough to worry them. Despite which role health plays in the Grossman model, there will be a reduced optimal health. Now the explanation according to the roles is as follows; According to the first role of health as a consumption good, a person achieves utility to consuming both health and home goods. Health is the actual condition of the body whereas home goods are any other non-health products that contributes to ones utility. Every human being is faced with a budget since everything that a person consumes has to be paid for. For this budget, a person has to work to accumulate income for facilitating the same. However, despite the level of income, human wants are unlimited and thus income is never enough to meet all human wants (scarcity). This forces one to make choices on the allocation of the available resources; more income is allocated to the most important need while foregoing the least important. A person becomes indifference on her spending on various needs and this creates an opportunity cost. The major constraint in this case is time. The 24 hours in a day is divided into working time, playing time, improving health and sick time. Working time is essential as it results in income that is used for buying both health and home goods, but time has to be spent on playing and improving health. Sick time is the time a person losses and spends sleeping thus less activities that may contribute to adding utility. Given the levels of sick time and time spent on improving health, a person is now left with a choice of working time and playing time as in the graph below. The initial budget line AB is constrained by U0. The increased sick time shifts the time constraint to the left to U1 and a new budget line is formed this is because sickness expenses reduces income. This in turn reduces both working and playing time from W0 to W1 and P0 to P1 respectively. The point of tangency between CD and U1 gives the new optimal Health. As per the second role of being an input of production, health and home goods have to be produced by the use of market inputs. Market inputs for health include treadmills and weights, while those for home goods include video games and movie tickets. Auld (2014) noted that productivity of a sick person falls since less time is spent on other productive activities such as playing, working and health improvement. According to Mayo Clinic (2015), the hypochondriac condition is associated with a lot of distress and thus can put one out of action. The initial optimum utility is U1 and the optimum health is H* where there is tangency between the PPF and the indifference curve. Hmin means that there is no activity taking place since there is no productivity time. Increased sick time reduces productivity time. Pearlman (2010) noted that at some point, a hypochondriac patient may enter the office with tears in her eyes; there is no way this person can have full concentration in the workplace. When productivity time deviates from the optimal H* to the direction shown by the arrow, utility falls from U1 to U2. This move is to a lower optimal health. Lastly as per the third role of health being an investment, since health is considered to be a stock, illness anxiety reduces this stock. There is no way a person who has a perception of being sick today can think of having a healthy future. According to Pearlman (2010), this person is convinced of dying and the last thing expected of her is to increase an investment on her health. The initial Marginal Efficiency of Capital (MEC) curve is MEC0 with Optimal health being H*. Health investment and health have diminishing returns; as health capital increases, it becomes difficult for one to generate health from inputs (Dolan, 2003). A fall in health lowers the MEC and thus shifts from MEC0 to MEC1. r + is the minimum return expected to be made on health investment. is the depreciation rate and raises the cost of health when one worries for a long period (Legg Nordqvist, 2017) When a person perceives that she might be suffering from a certain major disease, she thinks that life may end up very soon, thus, investment in health would attract a rate of return lower than r + . Dolan (2003) pointed out that this r + is the marginal cost of investing in health and must be equal to the marginal benefit. This makes her to have a view that investment in health will attract lower returns and thus opts to invest in other alternatives in the market other than health. This lo wers the MEC and the new health optimal level falls from H* to H*new. The biggest worry of a hypochondria person is that the disease may consume a big proportion of her income and that there is a low probability of recovering (eventually death will occur). An exogenous income of winning $ 1 million in lottery can have a positive effect on her perception. She now may feel that she is in a position better to fight with the disease even if it was real. The exogenous income will help in giving her some peace of mind in that she can now afford better health services. Cheng, Costa-i-Font Powdthavee (2015) confirmed the argument of lottery winners seeking more private health care. With such income, she my now decide to open up her new job and employ some workers. This action will not need much of her working time, money will now work for her, and thus, she will have more time for playing and improving health. In turn, this will now reduce the sick time as her health will now improve. An improvement in health will mean a reduction in sick time. Subsequently, this will boost her optimal health resulting in an improved productivity. Das (2015) noted that an improvement in health is greatly contributed by an improvement in income. References Auld, C. (2014). Individual-level demand for and production of health. Web.uvic.ca. Retrieved 16 April 2018, from https://web.uvic.ca/~auld/auld-jh-chapter5-grossman-R1.pdf. Cheng, T., Costa-i-Font, J., Powdthavee, N. (2015). Lottery income, healthcare, and supplementary health insurance. Voxeu.org. Retrieved 16 April 2018, from https://voxeu.org/article/windfall-income-and-healthcare-choices. Das, s. (2015). Health as a Human Capital: Overview of Grossman model. Slideshare.net. Retrieved 16 April 2018, from https://www.slideshare.net/sumitdas79462/grossman-model. Dolan, P. (2003). Grossmans theory of the demand for health care. Is.muni.cz. Retrieved 15 April 2018, from https://is.muni.cz/el/1456/jaro2009/PVEKZD/um/1329617/grossman.pdf. Legg, T., Nordqvist, C. (2017). Hypochondria: What is illness anxiety disorder? Medical News Today. Retrieved 15 April 2018, from https://www.medicalnewstoday.com/articles/9983.php. Mayo Clinic. (2015). Illness anxiety disorder - Symptoms and causes. Mayo Clinic. Retrieved 15 April 2018, from https://www.mayoclinic.org/diseases-conditions/illness-anxiety-disorder/symptoms-causes/syc-20373782. Novak, L. (2016). Confessions of a hypochondriac. Retrieved 15 April 2018, from https://www.washingtonpost.com/news/to-your-health/wp/2016/02/18/confessions-of-a-hypochondriac/?noredirect=onutm_term=.7d5f9a9af96d. Pearlman, J. (2010). Hypochondria: The Impossible Illness. Psychology Today. Retrieved 16 April 2018, from https://www.psychologytoday.com/us/articles/201001/hypochondria-the-impossible-illness.